Master Trust or contract-based? Navigate your way through the workplace pensions maze and decide which type of plan could be best for your business
Choosing a workplace pension scheme
We know that the breadth of choice available in the pensions market can be daunting when it comes to choosing the right scheme for you and your members.
As an employer, knowing that you have to provide a pension scheme for eligible employees is just the start. What kind of scheme is best? What are the differences, and how are you supposed to choose?
Master Trust or contract-based pensions?
Trust-based pensions have become more popular in recent years. This is mainly due to the rise of Master Trust pensions which give you the benefit of external trustees, without going to the effort of setting up a Trust yourself.
Contract-based schemes are more traditionally popular and are still chosen by huge numbers of employers who don’t want to go down the trust route.
There are fundamental differences between the two which we’ll explain to help you make the right decision.
What is a Master Trust pension scheme?
A Master Trust is a Defined Contribution workplace pension scheme. It’s made up of one legal Trust and a Board of Trustees who look after all the different, unconnected employers who join it.
While the Trustees’ services are used by all employers in the scheme to make it a cost-effective solution, each employer can still retain the flexibility they need to make the right decisions for their employees and their business.
Suits employers who don’t want to run their own trust based pensions arrangement but like the trust legal structure
Suits an employer who already has a trust based pension scheme, wants to wind up that scheme and only run one new scheme going forward.
What is a contract-based pension scheme?
A contract-based scheme is a Defined Contribution pension scheme established under contract law rather than trust law.
Members get an individual personal pension contract, which are grouped together at scheme level for efficient administration. The employer organises the collection of contributions to each individual pension plan through the payroll system.
Standard Life’s main contract-based offering is our Group Flexible Retirement Plan (GFRP).
Great for small businesses as it’s easy to set up online, but also hugely scalable (some of our largest clients have GFRPs)
Suits schemes where members are looking for a wider range of investment choice
Comparing Master Trust vs contract-based pensions in more detail
Ownership of the pension scheme
Master Trust Trustees
A Trustee Board’s experience and expertise is often one of the main motivators for employers to choose a Master Trust pension scheme. Trustees have ultimate responsibility for investments in the scheme and how members are looked after. The Trustees for the Standard Life Master Trust have diverse and complimentary professional skills giving the board a whole breadth of knowledge to draw on.
For both types of schemes our primary default investment option is our Sustainable Multi Asset Universal Strategic Lifestyle Profile, which aims to help people invest for retirement while taking sustainability factors into account.